Here is the new version of JGSME
http://www.users.on.net/~jscones/software/products-jsgme.html
As for the difficulty problem, you are changing it in the radio icon in the captains office aren't you (not from the game menu)?
Or if you are playing Uboats I think it's in the filing cabinet by the door to your office.
If you are changing it here and it's still not sticking, then yes maybe a corrupt install. Try completely removing SH4 and SH4UBM with the remove program control panel, then reinstall.
Let us know how you get on.